Will Another Crisis Let Japan Gain Economic Advantage?

I can't think of a major economy that has suffered two massive disasters in a century other than Japan. Given the way Japan rebuilt after World War II to amass the world's third largest economy prior to the recent earthquake/tsunami/nuclear catastrophe, there is certainly room for optimism that the Japanese can repeat that success this time. We certainly all wish them well.

Japan's economic history may also suggest a specific way in which this rebuilding can be used to give the country an advantage going forward.

Dr. Edwards Deming had been to Japan several times during the years immediately after World War II to advise on census matters. In 1950 he was invited to come back and lecture to Japanese business people on quality controls, at a time when made-in-Japan items were considered flimsy and of poor quality.

We all know what happened as a result: Deming predicted that if Japanese industries followed his recommendations on a cyclical approach to continuously improving quality, that they could be economically competitive and manufacture quality products within five years. They did it in four years, and gained a competitive global advantage that stood for several decades.

Fast forward to today, which I suggest offers a perfect situation for Japan to again pioneer in a management innovation. In this case the distinction would be to become the first nation to create a framework for a seamless flow of information within and between both government and industry.

The key tool to achieving this breakthrough is the eXtensible Business Reporting Language, XBRL, a global standard, free tool for sharing data by attaching "tags" to it that give it context and meaning. For example, the number 1600 by itself could denote anything from the White House's address to calories in a recipe. However, when bracketed with the XBRL tag "quantity," (1600) its meaning is immediately apparent. Even better, once tagged, data can automatically flow anywhere you choose where those same tags are present: within your company, to a trading partner for supply chain integration, and to a government agency.

Most important, and unrecognized by the vast majority of businesses worldwide, there is also a variation on XBRL, XBRL GL, or Global Ledger, which extends the system of tags to cover so many standard business terms that it can actually be used to provide real-time information within a company or a government agency to improve its daily operations, both in terms of flow of information to control processes, and also giving the entire workforce access to information they need to make better decisions. XBRL GL can also be used externally to better coordinate with a company's supply chain, a function that has gotten a lot of attention during the current crisis since shortages of critical parts have brought production of some car lines and high-tech products to a halt.

According to XBRL GL guru Eric Cohen, Japan had already been interested in the system: "the Japanese government was just about to embrace XBRL GL for their standard Japanese Software as a Service (SaaS) environment when things went on hold."

More important - and why Japan has such an opportunity to spread the benefits of XBRL use throughout its economy, is that the only two companies in the world that are regularly mentioned as actually employing XBRL GL internally to run their businesses, Wacoal and Fujitsu, are Japan-based. Given the benefits that each has realized by deploying XBRL GL internally, I'm flabbergasted that others haven't followed suit.

Fujitsu is a major vendor of XBRL software and services, and decided to apply its own technology internally. The company has more than 70 different systems, 1279 system interfaces, 400 forms, a million product codes. Most important is its Fujitsu Order Control system to process orders. Modernizing it by scrapping the legacy systems would be costly and time consuming, and several past attempted failed because the changes were too rapid an disruptive. XBRL GL allowed them to keep the legacy systems. By a phased-in program that capitalized on XBRL GL's properties of interoperability and reusability, the company now has a standardized, integrated view of all of its Enterprise Resource Planning data - the company's central operating information. Switching to the new system was "virtually invisible to end users," key processes that used to require manual processing have now been automated, and historical data has been integrated with the current data.

Most relevant, because it is a traditional manufacturer, rather than a vendor of software, is Wacoal. The women's clothing firm has grown through acquisitions, to the point that it had 32 independent legacy systems running on multiple platforms. Thirty-two business application systems such as purchasing, sales, payrolls, etc. provided data to 44 different accounting subsystems. Working with Hitachi, it adopted XBRL GL as its common data format and used Hitachi software to automate the processing from its business application systems to the accounting subsystems and consolidated them so all of the divisisions eventually fed into a new Oracle E-Business Suite. Data now automatically flows from the legacy business application systems into the company-wide accounting system. Best of all are the results:
• Shortened the closing of accounts by two days;
• Improved data quality by eliminating manual re-keying; and
• Improved quality of managerial reporting by real-time cash management.

If the Japanese government, as part of the disaster recovery process, were to streamline its governmental reporting processes (as the Netherlands and Australia have already done) by allowing companies to file a single XBRL-tagged data file instead of individual reports to multiple agencies, it would give companies a powerful incentive to adopt XBRL. Then the Japan Union of Scientists and Engineers (JUSE), the organization that teamed with Deming to bring about the quality revolution, or some other similar organization could hold seminars for companies to educate them on the benefits of using XBRL to run their daily operations and coordinate with their supply chain.

If XBRL were to really take hold nationwide in Japan it could cut companies' government compliance costs, help both companies and government agencies operate more economically and efficiently, and again make the country pioneers in an important management innovation that would give them a strategic advantage. No economic boost can compensate for the terrible damage Japan has suffered, but at least they can turn to history for proof that economic advantage can emerge from a disaster.